The looming crisis that's going to crush homeowners from coast to coast

Cinda Larimer was delivering newspapers on a cool November morning in Paradise, California, when she noticed something softly float down from the sky: ash.

"I knew that was bad," she told me. "That's when I called my work and said I gotta go." She had survived four previous fires in Paradise, which sits in the foothills about 90 miles north of Sacramento, so she had her routine down: She grabbed some essentials and piled into her minivan with her boyfriend, 17-year-old godson, four cats, turtle, and dog. The Camp Fire engulfed her town that day in 2018 — 85 of her neighbors died. Larimer's rented trailer home burned to the ground, forcing her family to convert their minivan into a new home.

Larimer spent the past few years bouncing between a friend's garage and motels before finally settling back into a trailer home in Paradise. She and other survivors of the Camp Fire, many of them retirees on fixed incomes, are struggling to rebuild and afford housing — many are still homeless. Those who do have homes are now faced with a jarring predicament: No one wants to insure them. As more people lose their homes to climate disasters, insurance companies are refusing to renew policies and backing out of entire states.

Anthony Roach, a friend of Larimer's who's a retired Navy veteran, survived the Camp Fire with his home intact. But earlier this year, his insurance company canceled his policy. "I've been on the phone all morning with my agent, and they are giving him the runaround as well," he told me. The turn of events has made Roach question whether he should stay in Paradise.

The problem isn't limited to California: As the risk of wildfires, severe storms, and flooding increases because of the climate crisis, homeowners across the country are struggling to insure their homes. Insurers are pulling out of risky markets and jacking up rates, leaving homeowners with policies that are unaffordable or nonexistent. The suddenly chaotic home-insurance market is one of the clearest financial signs yet that the climate crisis is already here — and its economic impact is only going to get worse.

Insurance 101

The business of private insurance is the business of balancing risk and profit. To maintain profitability, insurance companies have to take in more in monthly premium payments from customers than they pay out in damage claims. Charge too much, and people could take their business elsewhere; charge too little, and one disaster could wipe out their business. To maintain this balance, companies build complex statistical models to determine just how risky a customer's home is to insure — and just how much they may need to charge to avoid getting wiped out. If you live in an area that's prone to wildfires, there is a higher likelihood that the insurer will have to pay out a claim for fire damage, so it charges a higher monthly premium than for someone whose home has a lower risk of burning down. But as the climate crisis has intensified, the increasing risk of disaster is throwing a wrench in this equation.

California, the most populous US state by far, is prone to wildfires. Before the Gold Rush first brought large numbers of settlers to the area in the mid-1800s, it was common for large parts of California to burn every few decades. It was considered a natural process. But in recent decades, the fires have been more frequent and intense because of increased temperatures, droughts, and earlier snow melts in the mountains. Today, California has more wildfire risk than any other state, resulting in more than 1.2 million homes at moderate to severe risk of being damaged or destroyed by wildfires. The extent of the risk has caused insurers to reassess their business in the state. State Farm, the state's largest home insurer, announced in May that it would stop issuing new policies for homes in California. Allstate had quietly announced a similar move months earlier, in November. Similar pauses have also been implemented by the insurance giants American International Group and Chubb. The reasons for the departure were expressed in different vernaculars — State Farm called it "rapidly growing catastrophe exposure" — but they all amounted to the same conclusion: The state is just too risky.

While the fundamentals of the risk proposition are at the core of the decision, state policies are also a factor. California is among states that cap insurance premiums to try to restrict price gouging and keep prices affordable for customers. But because of the climate crisis, the profitability equation is changing. In 2022, the property-insurance industry experienced its largest underwriting loss — when claims are greater than premiums — since 2011. This has prompted insurance companies to back out of certain markets or pressure states to raise caps on premiums.

"What we've seen in the last few years is an increase in the frequency and severity of climate-related disasters," Benjamin Keys, a professor of real estate at the University of Pennsylvania's Wharton School, told me. Insurance companies, he said, are "reacting by raising their premiums, by reducing the amount of coverage that they offer, or by exiting entire states altogether." 

Flood risk and soaring costs

Florida, another ground zero for the insurance crisis, faces a different kind of climate risk. A third of Florida's population lives in flood-prone areas, and even more Floridians are at risk from hurricanes. A four-year study by the US Army Corps of Engineers said 3 feet of sea-level rise, which is expected to occur in the next several decades, would disproportionately affect the state, causing an estimated $24 billion in damage annually — 12 times what it's expected to cost the state's neighbor to the north, South Carolina. That increased risk is starting to show in residents' home-insurance policies.

Anita Waters, a resident of South Florida, saw her home-insurance costs go up by over 60% this past year, a relatively modest hike compared with others in the state. In January 2020, her annual bill was $926 — by January 2023, it was $2,035. Home-insurance policies in the state now cost about $4,200 on average, more than double the national average of $1,700. 

The estimated share of uninsured homeowners in Florida has grown above 13% — about twice the national average.

Along with the increased natural risk, Waters blames Gov. Ron DeSantis for the crisis. Without robust rate caps such as those in California, insurance costs have risen by over 200% while DeSantis has been in office. And the actions DeSantis, who has received $3.9 million in donations from the insurance industry since 2018, has taken have done little to mitigate Floridians' concerns. In May of last year, DeSantis approved a $2 billion reinsurance fund that aimed to reduce prices and keep insurance companies from bankruptcy. He also signed legislation in December that protects insurance companies from liability claims and disincentivizes homeowners from filing claims to begin with. At the bill signing, Desantis said, "The issues in Florida's property insurance market did not occur overnight, and they will not be solved overnight." Despite these policies, insurance prices have continued to go up and insurers have continued to flee the market. Farmers Insurance and AAA are the most recent names to join the growing list of insurance companies that have stopped issuing policies in Florida. 

Some Florida homeowners told me they're not insuring their homes at all, preferring to risk losing money on their homes over having to pay exorbitant prices. The estimated share of uninsured homeowners in Florida has grown above 13% — about twice the national average. And those who have coverage are seeing benefits shrink: The state for years has capped the amount of damage people can claim at $700,000, down from $2 million in 2013. And payouts can be far less when disaster strikes. A Washington Post investigation found that after Hurricane Ian struck Florida last year, insurance companies reduced some people's claims by as much as 97%.

Dale and Deb Weideling lived in a home in Fort Myers Beach before it became the epicenter of Hurricane Ian in September. Dale said that, of the roughly 31 structures in their neighborhood, all except nine were washed away or had to be demolished because of damage. "A lot of people are in the same shape we are," he told me. "They're rebuilding." Despite having home insurance, the Weidelings received only part of their claim for their destroyed home. To chase down the rest, they've had to hire a lawyer. While they await mediation, the cost for rebuilding is already tainted by the insurance crisis. "I can tell you the insurance we needed just for construction was very high," he told me.

'Going down with the ship'

It's not surprising that private-insurance companies are fleeing states such as California and Florida: The risks increasingly outweigh the benefits. What is surprising is that residents aren't fleeing with the companies. In theory, extremely high insurance rates and extreme-weather events should deter people from moving to low-lying areas and encourage existing residents to move away.

But in reality, developers continue to build new housing in high-risk areas, and people continue to move in. In Miami, home prices are up by 8% since 2022, according to Redfin. Across Florida, the average rent price jumped by over 6% in the past year. In a National Bureau of Economic Research study, Keys and Philip Mulder of the US Treasury found that home prices in flood zones had started to dip only in the past five years.

The lack of a large-scale relocation may seem irrational — why live in a place that seems to be trying to kill you? — but talking to homeowners in these areas, it's clear that many residents simply don't want to leave. In his 2017 book, "The Water Will Come," the climate writer Jeff Goodell asked the Miami artist Xavier Cortada whether he planned to get out of South Florida. "I'm never selling," Cortada said. "I'm going down with the ship."

And even for those who want to leave, there are plenty of other problems. There are no large-scale plans to relocate those who live in at-risk areas, making it unaffordable for many families to uproot their lives. Those who do seek higher or drier ground may find it more challenging as more and more parts of the US turn into high-risk areas. States including Louisiana, Oregon, and Colorado are also facing increased wildfire and flooding risks. In early August, wildfires in Hawaii destroyed more than 2,200 structures. The number of blizzards has doubled in the past 20 years, battering the East Coast and northern states like Minnesota and the Dakotas. Since 2013, winter weather has resulted in $2 billion in property damage, resulting in above-average insurance rates in the most affected states. Nationwide, the cost of the average home-insurance policy has increased by 21% since 2015, and is expected to jump another 9% this year.

"This is a more widespread issue," Keys said. "So much of the conversation is Florida and California, but people in the Midwest are saying we're also struggling to find reasonably priced insurance, whether that's because of river flooding or because of tornadoes."

Keys believes that insurers fleeing high-risk markets could be a bluff. "It's sort of a negotiating tactic for some of these big insurers to try to sway lawmakers into changing that limit on premium increases," Keys posited. He previously told Penn Today that insurance companies were in a long-run negotiation with lawmakers to raise prices, suggesting that insurers might return to states if they were allowed to set higher prices. But infinitely increasing prices isn't a long-term solution either: Insurers are still leaving states like Florida that don't have premium caps.

"On the one hand, you want to protect consumers from sharp increases in premiums," he told me. "On the other hand, you need a functioning insurance market, because without that insurance market, homeowners can't get mortgages."

Keys isn't optimistic that the industry will survive on its own without federal and state programs — and those programs are already proving to be an important backstop. While home insurance covering wind and storm damage is dominated by the private sector, virtually all flood insurance in the US is provided by the federal government through the National Flood Insurance Program. Created in 1968 in the aftermath of Hurricane Betsy, the NFIP filled the gap left by private insurers who refused to cover homes in low-lying areas. And though the program created its own problems by encouraging the construction of homes in high-risk areas, it could act as a blueprint for subsidizing unprofitable home insurance in the age of the climate crisis.

In California, more residents are being forced to turn to the bare-bones FAIR program, originally created in 1968 as a temporary safety net for those looking for basic coverage. Today, it provides coverage for residents and businesses who otherwise can't find insurance, but since the program is primarily funded by other insurance companies, it is dependent on private insurers remaining in California. These programs are far from robust enough to carry the insurance market, but as owning a home in the US gets riskier, the current state of insurance is proving unsustainable.

But ultimately, for many, the issue transcends utility. Cinda Larimer wasn't born in Paradise. She grew up in the Bay Area until she was priced out about 20 years ago. She chose to relocate to Paradise, moved into a studio there for $150 a month, and fell in love. "Who wouldn't want to live there?" she told me. "It was a retirement community. I threw the newspapers for three hours early in the morning and had the rest of the day to myself. I took my watch off as soon as I moved here. I haven't had to worry about where I needed to be."

Larimer says that while the town isn't the same after the fire, she isn't going anywhere.

Taylor Dorrell is is a writer and photographer based in Columbus, Ohio.